Telecoms Deregulation ?
Robert Waldmann
There seems to be a widespread view that the US experience with deregulation has been mixed. Financial deregulation was a disaster, but airline deregulation and telecoms deregulation were OK (except for how crowded airports are and irritating advertisements by competing phone companies).
What is this “telecoms deregulation” of which you speak.
I absolutely sincerely ask for information. I recall 2 episodes of newly intrusive telecoms regulation.
First ATT was forced to provide local (last mile) service to competing long distance carriers. This was imposed by the FCC. IIRC it was an application of the Sherman Anti-Trust Act. Yes there was a huge increase in competition, but it was caused by regulation not by deregulation. The purpose of the act was to force companies to compete. Following that decision to interfere with the free market, there was more competition. A regulation served its stated purpose. Clearly this is a case of regulation not de-regulation.
Another FCC ruling that would affect the company [MCI] was the 26 June 1968 ruling in the Carterfone case that deemed AT&T’s rules prohibiting private two-way radio connections to a telephone network were illegal. AT&T quickly sought a reversal of the ruling, and when the FCC denied their request brought suit against the FCC in the U.S. Court of Appeals. The FCC’s decision was upheld thus creating a new industry: privately (non-Bell) manufactured devices could be connected to the telephone network as long as the manufacturer met interface standards.
That ruling, which consisted of the Federal Government telling ATT what it could do with its property, introduced long distance competition. I was actually thinking of a later ruling in which a judge ordered ATT to make sure the interfaces worked (ATT had been trying to use the “as long as” part to restrain trade).
The second episode was breaking ATT up into ATT and the baby bells. This was definitely an act of regulation under the authority of the Sherman act. Just ask ATT.
… an antitrust suit by the U.S. government against AT&T. The suit began in 1974 and was settled in January 1982 when AT&T agreed to divest itself of the wholly owned Bell operating companies that provided local exchange service.
That’s regulation not deregulation.
I suppose there might have been telecoms deregulation too, but that would be only dealing with minor issues left over by the huge acts of telecoms regulation.
Unless I am confused, people are mixing up competitive markets and laissez faire. Under laissez faire ATT could use its natural monopoly to block competition until the US was cabled for TV. The cable companies could offer telephone service (I don’t think they bother). Cable TV wasn’t deregulation. It was a tiny bit of technology and massive investment.
One of the principal aims of economic regulation in the USA has long been the promotion of competition. Sometimes regulation and public intervention over-ruling private property rights achieves its aims. It seems that, in one such case, it is therefore called “deregulation.”
Robert: “Unless I am confused, people are mixing up competitive markets and laissez faire.”
I think people mix this up all the time…the boogey man is “gov. intrusion” and even this can be confused by people overall. See Mike’s post and Sumner.
“What is this “telecoms deregulation” of which you speak.”
there was a time in the land when there was only one telephone company and two types of telephones with several color options, and long distance telephone calls cost “time plus distance” charges
and then one day THE telephone company was broken up into several parts and parts and a competitive “free market” was expected to arise
Before the breakup, ATT was a regulated monopoly. I vaguely remember that they seemed to be in constant negotiation with the regulators over rates, profit margins, etc.
Robert is indeed confused, but it is not surprising since the history of telecommunications is complex, and involves interactions between regulators (the FCC) the Courts and Congress.
For much of the 20th century, AT&T was regulated as a natural monopoly. They provided “calling services” and provided everything from the handset and inside wiring, to local and long distance service. They had a policy of “no foreign interconnection” with telecomm equipment, which they took as far as claiming that a plastic book cover for the White Pages sold by a third party was forbidden under their tariffs and threatened to withhold service from those who bought it.
This view was first challenged by the 1954 Hush-a-phone decision which allowed a third party to sell a clip on plastic attachment to telephone handsets that provided a measure of privacy to a telephone user in a crowded office. AT&T claimed it was a foreign attachment, the FCC agreed, but was overruled by the Court which held that AT&T tariffs must permit any device which was “privately beneficial without being publicly detrimental.” This led to fax machines with acoustic couplers and eventually to Carterfone which permitted third party handsets and PBX’s. In 1980 the FCC detariffed all Customer Premises Equipment, which meant that AT&T could not provide it under tariff, or use tariffs on telephone service to prevent third party equipment from being attached. This effectively deregulated the CPE marketplace. So this story starts with the Courts and ends with the FCC deregulating all CPE.
Prior to 1959, AT&T had a virtual monopoly on allocations of spectrum for microwave communications. In the Above 890 decision, the FCC allowed private companies–such as Southern Pacific Railroad–to acquire spectrum and provide telephone communications to themselves over that spectrum. In 1969 with the MCI decision, and subsequent Specialized Common Carrier decision in 1972 they allowed companies to sell long distance private line microwave services in competition with AT&T. Key to this was the insistence that AT&T, as a common carrier, could not discriminate by refusing to interconnect with MCI for the last mile circuits from a customer to MCI’s microwave towers. In 1975, the Supreme Court, in the Execunet decision, told the FCC they did not have the authority to limit MCI to private line only. Thus began the era of competition in long distance service with MCI and Southern Pacific Communications– which became Sprint–leading the way. The 1996 Telecom Act authorized the FCC to refrain from requiring tariffs for long distance services which it did as of 1997–another clear form of deregulation. Common carrier regulation forced AT&T to interconnect with newly authorized competitors, and eventually when competition provided adequate pressure on long distance prices, these could be deregulated.
Similarly, the FCC has partially deregulated mobile service pricing, though it maintains common carrier regulations of non-discrimination.
Regarding cable and telephony, Comcast is now the country’s fourth largest fixed line telephony provider, and in some cities, such as San Diego and Phoenix, the cable operator has a larger telephony market share than the incumbent telephone company, so the cable companies do “bother”.
The biggest mistake of re- regulation, it was not de- regulation, was leaving the baby bell monopolies intact. I remember the days of $400 long distance bills, and with cell phones that has stopped entirely. Cell phones have really been the freeing factor intelecom, though 15% of my bill is taxes. Look at europe, where more lighly regulated cell has liberated people from the unresposive landnline monpolies.
Mas:
Thanks you for the explanation
Thanks for the extensive explanation. There is one point I don’t understand. As far as I can tell, you describe extensive regulation (common carrier, supreme court decision etc) and then near the end write “another clear form of deregulation. ” As far as I can tell, that was the first form of deregulation mentioned in your comment.
The other events all seem to me to be regulation — telling ATT what it must do with its own private property.
Ah I see an earlier use of the word “deregulation” “In 1980 the FCC detariffed all Customer Premises Equipment, which meant that AT&T *could not* provide it under tariff, or use tariffs on telephone service to prevent third party equipment from being attached. This effectively deregulated the CPE marketplace. ” You know much more of the history of telecoms than I do, but I firmly assert that the correct sentence would be “this effectively regulated the CPE marketplace.” It was a decision that ATT could not do something hence regulation not deregulation.
In general, you seem to argue that ATT regulated telecoms. This is not what the word means. ATT decided what to do with its private property. That meant that telecoms was under top down command and control. This was not due to regulation, but rather due to private property rights.
The history is a history of common law vs common carrier. Competition and choice exist because of restrictions on ATTs private property rights, that is, because of regulation.
leaving monopolies intact is not regulation. Breaking up monopolies is one of the oldest forms of regulation in the USA. Letting private firms do whatever they please is not regulating. I guess this is all an argument about the meaning of a word, but it is a standard word with a standard meaning. The Sherman act is a regulation. The common carrier principle is regulation created by judicial activism.
You can have fairly free markets or you can have laissez faire but you can’t have both.
Oh and cell phones need regulation. They wouldn’t work very well if ATT were free to jam their signals. Building a honking big antenna on one’s own private property is allowed under libertarian principles (otherwise they would have support regulation of non-electromagnetic pollution and we can’t have that). FCC regulations make the cell phone industry possible.
Well, yes, of course.
If we leave aside the vulgar libertarians (you know, the keep the Govt’s hands off my Medicare crowd) then when we come to natural monopolies and networks then the question isn’t “regulate or don’t regulate” but “how do we regulate”?
Should we have that (seemingly impossible) omniscient and benevolent bureaucracy attempting to micro-manage the network/monopoly?
Or should we put in place, as best we can, some semblance of competition? This will require some rules, yes (open access, last mile, etc) but means that we can probably leave things like prices and consumer offers to the market and that created competition to sort out.
We might also look at another industry as an example. Electricity generation perhaps. Yes, the California example didn’t go well. I would argue because the specific basic rules put in place were not sufficient. The same was done in the UK and those rules were sufficient. The grid, the network, the natural monopoly, is regulated strictly. Power generation is not, but there are some limits even there. No one company may own enough of total generation capacity to be able to construct an oligopoly (let alone a monopoly) and all must offer power for sale through the grid, at prices determined by supply and demand across that grid.
This seems to work well.
As I say, it’s not “no regulation or some”, it’s “how do we regulate”? Sometimes the answer will be strict bureaucratic regulation. Sometimes it will be loose rules creating a pseudo market. Sometimes it will simply be let the consumers do the regulating through the market itself.
***there was a time in the land when there was only one telephone company and two types of telephones with several color options, and long distance telephone calls cost “time plus distance” charges ***
Not exactly. There was one long distance provider. There were, and still are, many telephone companies mostly small, but some not so small. e.g. General Telephone and Engineering provided local service to many millions of Americans even before AT&T was broken up.
A government protected monopoly is regulation, and breaking them up is regulation. But at least breaking them up allows competition. That competition has been good for consumers. I never said that all regulation was bad in this case. I vote for fairly free markets, unfortunately many do not even want fairly free. I accept the role of government, but not when it protects monopolies, which it still does extensively.
are regulation and de-regulation either/or states
is a space regulated or is de-regulated – made free of any and all regulation
or is it a mixed state – some things regualted and some deregulated?
wiki on telecommunications act of 1996 –
“The Act both deregulated and created new regulations. Congress forced local telephone companies to share their lines with competitors at regulated rates if “the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer.” (Section 251(3)(2)(B)) This led to the creation of a new group of telephone companies, “Competitive Local Exchange Carriers” (CLECs), that compete with “ILECs” or incumbent local exchange carriers.
Most media ownership regulations were eliminated.”
Don’t forget that telecommunications (and other utilities) involve both private and public (e.g., rights-of-way, e-m frequencies, etc.) facilities. Also, the public necessity requires telecommunications networks to be virtually ubiquitous.
The “regulated monopoly” paradigm was based on (1) making the carrier provide service to everyone; (2) the ubiquitous network was too expensive for another carrier to duplicate; and (3) reducing the impact on public facilities (e.g., one set of lines in public rights-of-way rather than having the streets dug up every few weeks).
In the 1980s & 1990s, when partial competition started becoming technologically and economically feasible, the incumbents argued that competitors essentially had to build their own entire duplicate network, which creates a huge market entry barrier. This is what the incumbent carriers consider to be “deregulation”.
The regulatory paradigm slowly switched to “regulated competition”, which envisioned multiple providers for various components of telecommunications services (e.g., long distance, local switching, etc.), even though some parts of the telecommunications monopoly still existed. The 1996 Act, while “balanced” on its face, effectively allowed the incumbents to delay competitors’ access to the network while tying up the incumbents’ customers with long-term contracts and huge termination fees. We’ve wound up with unregulated monopoly, where incumbents are given public facilities (especially e-m frequencies).
The disaster was cause by regulation and government policy. Fannie, freddy are government programs. Pressuring banks to provide loans to red lined neighborhoods is government extortion. Forcing banks to allow consumers to break contracts and finance to their own advantage was a major motivation to create CDOs in the first place. Banks are regulated its really about the limits of regulation.
There seems to be a widespread view that the US experience with deregulation has been mixed.
Our experience with all things in life is mixed; so ups and downs are normal.
The two earliest events in telecom deregulation were (a) New regulations that forced AT&T to accept non-AT&T equipment on their networks. It started with modems, and later was expanded to telephones made by 3rd-party manufacturers (Uniden was very early in the game.) The other thing was the entrance of Sprint and MCI (later swallowed by ‘Worldcom’) into the long distance market. Sprint invented the concept of a local access number to give you long distance service. AT&T lost both lawsuits. People felt that losing these lawsuits was “de-regulation” but it really wasn’t, it was just a monopoly (Bell System) trying to assert its right to eliminate competitors, but times had changed greatly after 80 years of monopoly status, and 15-odd Nobel Prizes …